Lenders dangle carrots in drive for efficiency

by
CMP |
02 May 2012

Brokers are increasingly being judged by the efficiency of their work and not just the funded volume of their labour, with two channel players formally updating reward programs to better reflect that metric.

With the introduction of a new broker bonus program, National Bank is betting rewards for broker efficiency will bolster both the client experience and broker satisfaction at the same time it slashes originations costs.

Mono-line Canadiana is making a similar wager in treading out an update to its own compensation plan. The new-and-improved includes an Instant Reward option -- an upfront lump sum payment in addition to a bonus for meeting efficiency targets.

“What efficiency does do is that it allows us to revise and create a compensation plan that rewards brokers at renewal,” said Philip Beer, VP of national sales for Canadiana. Also effective May 1 is the lender’s “Freshly Brewed Renewal” plan, which pays not just upfront, but also at renewal.

National Bank used the start of the month as well to officially launch its efficiency bonus program. It pays out bonuses to brokers on a monthly basis.

The program also continues use of the tiered system, specifically four levels based on broker’s approval and approved fund ratios. It will see them earn anywhere from five to 20 basis points.

While the top two levels will only be available to broker who are members of the bank’s Red Carpet program, its new efficiency bonus program will be national, allowing brokers from all provinces to take advantage.

In crafting the program, National said it started by creating a baseline for efficiency ratios based on broker scorecards. The efficiency ratios to be used will be based on a six-month rolling average whereby the last 90 days are discounted, meaning, for example, a May efficiency bonus will be based on ratios from September to February.

In addition to the efficiency bonus program, the bank also adjusted its volume bonus program, also rolled out May 1.

Another lender, ING Direct, has also introduced an efficiency program last year which also compensates us for efficiencies. In theory, I like these programs as it does promote better behavior and results in the industry. It also will put more money in the pockets of the brokers who are in fact efficient.In reality, however, there are many issues that this causes. First, the results are based on the reporting that the lenders create. We all know that often times these reports are far from accurate. For example, applications are often double counted if you are required by the lender to re-submit the same deal twice. This can skew the funding ratios dramatically.This efficiency compensation can also cause problems for agents that belong to consolidators in that most of these efficiency bonuses are based on the efficiency of the entire network rather than that of the individual producer. As such, your individual efficiency is impacted by the efficiency (or lack thereof) by your association. You could personally have a funding ratio of 90% but still earn zero in efficiency bonus because your consolidator’s efficiency ratios are much lower. I suspect that more and more lenders will be moving to some kind of efficiency bonus which I encourage.